Multinationals: Are They Good for America?

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The alliance is spending just $70 million a year on collaborative research right now, far too little to jolt the economy out of its short-term doldrums. But over time, as the group puts its research into action, its members will spend several billion dollars implementing the changes, says Kelly. For IBM, most of its investments will be in the U.S., since its two chip plants are in East Fishkill, N.Y., and Burlington, Vt., and its largest research labs are in Westchester County, N.Y., and Silicon Valley. Says George M. Scalise, the president of the Semiconductor Industry Assn.: "Basic research and manufacturing will be more tightly woven geographically, in spite of our ability to communicate so freely via the Net."

But globalization raises other questions. Does a company's nationality matter from the perspective of the U.S. economy? Does it matter whether jobs come from Google (GOOG) or Toyota (TM)? Is a U.S.-based global company any more likely to invest in the U.S. during a downturn?

Many economists believe a multinational's nationality is unimportant. "You want the jobs in the country, but it ultimately doesn't matter who owns the firms," says Nicholas Bloom, a Stanford University economist who studies multinationals. Robert B. Reich, the Labor Secretary under Bill Clinton, agrees: "Nationality matters almost not at all today. "

Certainly some foreign companies have moved into the U.S. in a big way. Siemens, for example, has invested heavily in the U.S. in the past few years. That includes opening a facility making wind turbine blades in Fort Madison, Iowa, in 2007, which Siemens plans to expand this year. "That business is very robust in the U.S. market," says George Nolen, president and CEO of Siemens Corp., the U.S. subsidiary of the German multinational.

Others believe those stateside expansions serve the U.S. better when the multinationals are U.S.-owned. "The reality is that the value chain tends to keep the knowledge and expertise near the center," says Christopher A. Bartlett, a profssor at Harvard Business School. "I'd prefer to have U.S. multinational companies."

The success of U.S.-based multinationals can also affect the quality of life in parts of the country where they have a big presence. In particular, there are lots of spillover effects from having the headquarters of a global company in a town, including monetary support for local colleges, museums, hospitals, and other nonprofit activities.

Hutchinson, Minn., home to Hutchinson Technology (HTCH), illustrates the link between global success of a U.S.-based company and its impact on a local community. The maker of high-precision disk-drive components, which now sells about 90% of its output outside the U.S., was co-founded in 1965 by a Hutchinson native. "The local ownership has had a tremendous impact on the local community," says Mike Boehme, chairman of the board of the Hutchinson Chamber of Commerce and a dean at Ridgewater College in town. "If a foreign group took over, we wouldn't be the community we are."

COST-BENEFIT ANALYSES

The lack of jobs and investment coming from U.S. multinationals didn't matter too much during the housing boom. Even as U.S. jobs at global firms slumped, domestic employers in construction, health care, and restaurants took up the slack.

But now Americans—and the Fed—need the multinationals to help out. Will they start investing enough in this country to cushion the downturn? The value of the dollar has fallen by more than 20% against the currencies of U.S. trading partners since 2003, the biggest sustained decline since the index was started in 1973. In particular, the dollar has dropped by 15% against the Chinese yuan. Meanwhile, labor costs in China and India have jumped, while real wages in the U.S. have fallen by 1% in the past year, according to an experimental index that covers all jobs, even the highest-paid ones. Transportation costs have risen as well, making shipping more costly. All of that makes producing in the U.S. more attractive today than it has been in a while.

But the chief executives of multinationals don't make location decisions based on short-term economic fundamentals alone. For one thing, they worry about taxes. The U.S. has one of the highest corporate income tax rates among industrialized nations, according to data from the Organization for Economic Cooperation & Development.